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$9,000,000, respectively, has been budgeted for
1983 1982
investment in proved producing domestic oil and
(in thousands)
gas properties and unproved onshore leasehold
Capitalized leases-
interests for resale to others for oil and gas explora-
computer equipment $24,353 $24,158
tion and development.
Less accumulated
computer amortization 18,107 15,354
The Company, through its CFS subsidiary, has
Net capitalized leases-
entered into certain computer equipment transac-
computer equipment $ 6,246 $ 8,804
tions in which it has leased equipment and in turn
has subleased such equipment. In substantially all of
At September 30, 1983, the Company, as lessee,
these transactions, the lease term exceeds the sub-
was obligated to pay rentals under those capitalized
lease term. At September 30, 1983 and 1982,
leases. The following table summarizes minimum
$19,336,000 and $21,258,000, respectively, of
rentals payable by the Company as lessee under
costs (representing the present value of the excess of
capitalized leases:
lease payments over the initial sublease payments)
Comdisco (B)




were deferred in connection with such transactions
Years ending September 30 Minimum rentals payable
and are included in other assets and deferred
(in thousands)
charges. These deferred costs will be recovered from
1984 $7,527
remarketing the equipment after the expiration of
1985 5,244
the initial sublease. At September 30, 1983, the
1986 2,807
Company has ¬rm noncancellable rentals under
1987 1,810
binding contracts totaling $9,102,000 as a result of
1988 521
remarketing a portion of this portfolio. All of these
Total minimum lease pay-
noncancellable rentals will be used to reduce the
ments 17,909
investment in the period such rentals are received.
Less imputed interest (9% to
17%) 3,722
8. Bank Borrowings and Compensating
Obligations under capital
leases (present value of net Balances
minimum lease payments) $14,187
The Company has a revolving credit agreement
which entitles it to borrow up to $15,000,000 on an
The Company has subleased equipment under cap-
unsecured basis. The agreement, which expires
italized leases to others resulting in noncancellable
March 31, 1984, carries an interest cost of prime
sublease rental income of $10,532,000 due to the
rate (11.0% at September 30, 1983) and includes a
Company in the future.
fee of 3„ 8 % per annum of the average daily unused
amount. If either the Company or the bank elects
7. Other Assets and Deferred Charges
not to renew the agreement, the loan becomes
During the third quarter of ¬scal 1983, the Com-
a two-year term loan payable in equal quarterly
pany began operations of a newly established,
installments with an interest cost of prime rate plus
wholly owned subsidiary, Comdisco Resources, Inc.
1%. Under the agreement, the Company is required
(“CRI”). CRI is primarily engaged, through joint ven-
to maintain a de¬ned debt to net worth ratio and
tures with established partners, in the acquisition of
dividend payments cannot exceed 20% of consoli-
mineral and royalty rights in producing domestic oil
dated net earnings subsequent to September 30,
and gas properties and in the acquisition of onshore
1980. At September 30, 1983, approximately
leasehold interests primarily for resale to others for
$10,658,000 of retained earnings were available
oil and gas exploration and development. At Sep-
for payments of dividends.
tember 30, 1983, included in other assets and
deferred charges are $22,959,000 of investments In accordance with the terms of the agreement,
representing primarily onshore leasehold interests in the Company is required to maintain average
unproved properties held for resale to others. For cash balances with the bank equal to 5% of the
¬scal 1984, approximately $17,800,000 and $15,000,000 loan commitment. The amount of
861
Case: Comdisco, Inc. (B)




131
Part 4 Additional Cases




unused available borrowings under the agreement 1981, the Company, in connection with future sink-
was $15,000,000 at September 30, 1983. ing fund requirements, acquired $2,750,000 princi-
pal amount of the outstanding debentures which
At September 30, 1983, the Company had an addi-
resulted in a gain of $318,000 (net of income taxes
tional unused line of credit totaling $25,000,000
of $270,000).
which bears interest at the prime rate. Under the
agreement, the Company is required to maintain The annual maturities and sinking fund require-
compensating balances equal to 5% of the out- ments of all the subordinated debentures for the
standing borrowings. next ¬ve years are as follows:

9. Subordinated Debentures Years ending September 30 Aggregate maturities
8% Convertible Subordinated Debentures: In May (in thousands)
1983, the Company issued $250,000,000 of 8% 1984 $00”
1985 1,300
convertible subordinated debentures (“Convertible
1986 1,350
Debentures”) due in 2003. Issue costs of approxi-




Comdisco (B)
1987 1,350
mately $5,000,000 were deferred and are being
1988 1,350
amortized over 20 years. Each $1,000 principal
amount may be converted into shares of common
stock of the Company, prior to maturity, at the 10. Income Taxes
option of the Convertible Debenture holder at a
The following data related to the provision for
conversion price of $36.50 per share.
income taxes for the years ended September 30:
The Convertible Debentures are not redeemable
1983 1982 1981
prior to November 1, 1984 unless the average clos-
ing price of the common stock is $51.10 for the Current:
twenty consecutive trading days ending on the ¬fth Federal $13,000 $ 6,252 $ ”
day preceding the date of notice of redemption. State 6,000 1,076 ”
Thereafter, they are redeemable in full or in part at 19,000 7,328 ”
the option of the Company at an amount equal to Deferred:
108.0% of the principal amount, with the premium Federal (12,200) 16,281 4,216
on redemption declining 8% per annum commenc- State (2,200) 273 553
Foreign 2,400 550 961
ing in 1984 through 1993, and redeemable there-
(12,000) 17,104 5,730
after at par.
Total tax provision $7,000 $24,432 $ 5,730
13% Convertible Subordinated Debentures: On
Earnings before
November 4, 1982, the Board of Directors
income taxes:
announced the redemption of all of the Company™s
Domestic $51,869 $51,166 $18,992
13% Convertible Subordinated Debentures Due
Foreign 6,971 2,643 2,379
2001 at a redemption price of $1,117 for each
Total $58,840 $53,809 $21,371
$1,000 principal amount, plus accrued and unpaid
interest to December 6, 1982. Common stock
issued upon conversion of $49,839,000 principal Income tax bene¬ts of $900,000 resulting from the
amount totaled 5,111,360 shares. redemption of the 13% convertible debentures in ¬s-
cal 1983 and $1,252,000 resulting from the exer-
111„2% Subordinated Debentures: At September 30,
cise of non-quali¬ed stock options in ¬scal 1982
1983, $12,250,000 of 111„2% subordinated deben-
were utilized to reduce the current Federal tax
tures due December 1, 1992 were outstanding.
liability.
Annual sinking fund payments of $1,350,000 (9%
of the aggregate original principal amount) com- The reasons for the difference between the U.S. Fed-
menced December 1, 1982 and are calculated to eral income tax rate of 46% and the effective income
retire 90% of the issue prior to maturity. During ¬scal tax rate were as follows:
862 Case: Comdisco, Inc. (B)




132 Part 4 Additional Cases




Percentage of Pretax Earnings 1983 1982 1981
1983 1982 1981 Difference between
leases accounted
U.S. Federal income tax 46.0% 46.0% 46.0%
for as sales-type
Increase (reduction) result-
leases for ¬nancial
ing from:
statement purposes
Domestic International
and operating
Sales Corporation tax
leases for tax pur-
bene¬t ” (.1) (1.2)
poses 211 (23,601) 194
Reduction of deferred
Reinstatement (reduc-
income taxes applica-
tion) of deferred
ble to investment tax
income taxes
credit carrryforward ” ” (20.4)
applicable to:
Investment tax credit (37.9) (2.0) ”
Investment tax
State income taxes, net of
credit carryfor-
Comdisco (B)




U.S. tax bene¬t 3.5 1.4 1.2
ward ” 12,021 (4,356)
Other “ net .3 (.1) 1.2
Tax net operating
11.9% 45.4% 26.8%
loss realization ” ” 2,323
Income tax bene¬t
The Company has not provided for income taxes on resulting from
the unremitted earnings of the Domestic Interna- exercise of non-
tional Sales Corporation (DISC) subsidiary aggre- quali¬ed stock
gating $4,253,000 through September 30, 1983, options ” ” 1,903
Other “ net (490) 3,120 1,492
since the Company intends to postpone inde¬nitely
the remittance of such earnings. $(12,000) $17,104 $5,730
Deferred income taxes provided for timing differ-
The Internal Revenue Service is examining the tax
ences were as follows:
returns for the years 1980, 1981 and 1982. How-
ever, no ¬nal adjustments have been proposed and
1983 1982 1981
no provision for additional taxes is deemed neces-
Sale of tax bene¬ts $(6,172) $38,661 $ ”
sary. The Company has settled all tax years through
Difference between
¬scal 1979.
depreciation for tax
purposes and
11. Common Stock and Additional Paid-In
¬nancial statement
Capital
purposes (6,305) (18,125) 6,311
On January 20, 1983, the Board of Directors
Deferred compensa-
tion expense 1,264 754 (754) declared a two-for-one split of the Company™s com-
Deferred leasing mon stock effective March 1983. On January 27,
income 7,445 2,934 (2,093) 1982 the Board of Directors declared a three-for-
Deferred leasing two split of the Company™s common stock. On Jan-
costs 19 1,518 1,164
uary 20, 1981 the Board of Directors of the Com-
Interest income on
pany declared a ¬ve-for-four split of the Company™s
escrow account
common stock. All references in the ¬nancial state-
bonds not included
ments and notes to the number of shares of com-
in book income (7,972) ” ”
mon stock and per share amounts have been
Portion of undistrib-

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